Partners Ltd operates a car manufacturing plant. It has decided to purchase a 100 per cent interest in Sole Ltd, a manufacturing company. The cost of the acquisition is $5,000,000 plus associated legal costs of $10,000. As at the date of acquisition, the statement of financial position of Sole Ltd shows: $ $ $ Assets Current assets Cash 110,000 Accounts receivable 60,000 Provision for doubtful debts (10,000) 50,000 Inventory 140,000 Total current assets 300,000 Non-current assets Buildings, at cost 700,000 Accumulated depreciation—buildings (150,000) 550,000 Plant and equipment 400,000 Acc. depreciation—plant and equipment (100.000) 300,000 Total non-current assets 850,000 Total assets 1,150,000 Liabilities Current liabilities Accounts payable 70,000 Bank overdraft 30,000 Total current liabilities 100,000 Non-current liabilities Bank loan 250,000 Total liabilities 350,000 Net assets 800,000 Additional information The assets and liabilities of Sole Ltd are fairly stated, except for the following: • Buildings have a fair value of $400,000. • Some of the inventory items cannot be used for production. The total inventory has a fair value of $50,000. • Sole Ltd has a Trademark. The trademark was not recorded in the statement of financial position. It has a fair value of $500,000. Required Determine, for accounting purposes, the amount of goodwill that has been acquired by Partners Ltd.
Partners Ltd operates a car manufacturing plant. It has decided to purchase a 100 per cent interest in Sole Ltd, a manufacturing company. The cost of the acquisition is $5,000,000 plus associated legal costs of $10,000.
As at the date of acquisition, the
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$ |
$ |
$ |
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Assets |
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Current assets |
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Cash |
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110,000 |
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60,000 |
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Provision for doubtful debts |
(10,000) |
50,000 |
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Inventory |
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140,000 |
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Total current assets |
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300,000 |
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Non-current assets |
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Buildings, at cost |
700,000 |
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(150,000) |
550,000 |
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Plant and equipment |
400,000 |
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Acc. depreciation—plant and equipment |
(100.000) |
300,000 |
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Total non-current assets |
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850,000 |
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Total assets |
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1,150,000 |
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Liabilities |
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Current liabilities |
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Accounts payable |
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70,000 |
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Bank overdraft |
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30,000 |
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Total current liabilities |
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100,000 |
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Non-current liabilities |
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Bank loan |
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250,000 |
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Total liabilities |
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350,000 |
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Net assets |
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800,000 |
Additional information
The assets and liabilities of Sole Ltd are fairly stated, except for the following:
• Buildings have a fair value of $400,000.
• Some of the inventory items cannot be used for production. The total inventory has a fair value of $50,000.
• Sole Ltd has a Trademark. The trademark was not recorded in the statement of financial position. It has a fair value of $500,000.
Required
Determine, for accounting purposes, the amount of
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